Question

A project with an initial cost of $27,600 is expected to generate cash flows of $6,700,$8,800, $9,150, $8,050, and $7,500 over each of the next five years, respectively. What is the project's payback period

Answer 1

3.36 years

Step-by-step explanation:

The computation of the payback period is shown below:

Given that

In year 0 = $27,600

In year 1 = $6,700

In year 2 = $8,800

In year 3 = $9,150

In year 4 = $8,050

In year 5 = $7,500

If we added the first 3 year cash inflows than it would be $24,650

Now we deduct the $24,650 from the $27,600 , so the amount left is $2,950 and if we added the fourth year cash inflow so the total amount exceeds to the initial investment. So, we subtract it

And, the next year cash inflow is $8,050

So, the payback period equal to

= 3 years + $2,950 ÷ $8,050

= 3.36 years